Oil, bonds divergence highlights US fiscal fears: McGeever
Repeats Oct. 30 column without change
By Jamie McGeever
ORLANDO, Florida, Oct 30 (Reuters) -U.S. Treasury yields often move in tandem with the price of oil, but this relationship has broken down in recent weeks, suggesting that the near-term inflation outlook has taken a back seat to long-term deficit fears in the bond market.
Falling oil prices – especially negative year-on-year price moves – are usually disinflationary. And year-on-year crude oil prices have been negative since mid-July, nearing -30% in September. This would typically be a bullish signal for Treasuries, as lower inflation increases the likelihood that rates will fall across the yield curve.
Yet yields and oil have diverged sharply. Since the Federal Reserve's jumbo 50 basis point rate cut on Sept. 18, the 10-year Treasury yield has spiked by almost 70 basis points – a historically large shift – even as the price of oil has fallen.
Monday's price movements were particularly noteworthy. Crude slumped 6%, while the 10-year yield leapt 5 bps to hit 4.30% for the first time in nearly four months.
Oil's recent decline was primarily driven by geopolitics, specifically signs of de-escalation in the conflict between Iran and Israel. Regardless of the driver, a fall in oil of that scale would normally be accompanied by lower bond yields.
The 10-year yield has declined on seven of the nine days in which the oil price has fallen by 4% or more over the past year. The two occasions where it hasn't were both this month.
Importantly, the recent rise in yields coincided with a week of heavy debt issuance from the Treasury: some $178 billion of two-, five- and seven-year bonds were on the block, not to mention a wave of bill sales and inflation-linked bonds too.
Fiscal issues nay be causing this market indigestion.
TRUMP TRADE
Can investors expect the relationship between Treasuries and inflationary pressures to reassert itself any time soon?
Bob Elliott, a former executive at Bridgewater and founder and CEO of asset manager Unlimited, notes that other bond markets around the world are also selling off, indicating a wider issue.
"My sense is the divergence stays rather than compresses. It highlights that sovereign debt is increasingly out of favor for not just U.S. but global investors," Elliott says.
Andreas Steno Larsen, CIO at Steno Global Macro Fund, reckons the link will probably reestablish itself soon, but notes that the current divergence is one element of the wider "Trump trade".
That is, investors are positioning for extremely lax fiscal policy, with the expectation that former president Donald Trump will win the White House and possibly be supported by both a Republican house and senate. In that scenario, Trump would be able to push through tax cuts and other potentially budget-busting policies.
LOSING CONTROL?
The prospect of rising bond yields amid a Fed easing cycle could cause headaches for many, including Trump himself, a former real estate operator and long-time vocal advocate of lower borrowing costs.
This may also be rustling a few feathers on the Federal Open Market Committee, particularly among the doves, as mortgage rates are rising again due to the upward pressure of longer-dated yields.
Could Fed Chair Jerome Powell address this issue next week? It wouldn't come as a total shock given the massive move in yields since September.
According to Jim Bianco of Bianco Research, the 10-year yield's rise of almost 70 bps is the biggest rise following the initial cut in a Fed easing cycle since 1989. This super-sized move suggests the Fed may have lost control of the longer end of the curve, and Powell may be eager to regain the reins.
But, for now, politics remain in the driver's seat. With the presidential election less than one week away, bond investors appear to be voting with their feet, fearful that widening fiscal deficits will push up longer-term inflation and the risk premium on federal debt.
Perhaps this will change after the election. Maybe President Kamala Harris or President Trump will unexpectedly vow to restore fiscal discipline, but that's a long shot. In the meantime, Treasuries are likely to remain under pressure, regardless of the oil price.
(The opinions expressed here are those of the author, a columnist for Reuters)
U.S. Treasuries, oil diverge sharply https://tmsnrt.rs/3UshPtN
U.S. 10y yield's biggest rise after maiden Fed cut since 1989 https://tmsnrt.rs/4hklLXd
U.S. 'term premium' up sharply after Fed rate cut https://tmsnrt.rs/4e0MUeU
By Jamie McGeever; editing by David Evans
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
